The latest black hole in health is now threatening the Coalition's ability to deliver tax cuts in next year's Budget.

Tensions are mounting within the Government over Dr Reilly's failure once again to get spending under control and achieve savings under the Haddington Road Agreement. The HSE has prepared a report, obtained by the Irish Independent, predicting "a full year 2014 potential cash shortfall of €532m".

The extra spending needed for health, if it goes unchecked, will swallow up any additional resources available to the Government and jeopardise the prospect of an easing of the cuts and taxes next year.

Government sources say there is enormous anger in the Coalition at the continued pattern of overspending in the health sector.

"It is a dysfunctional department led by a dysfunctional minister at this stage. The answers just don't stand up to scrutiny," a source said.

But HSE chief financial officer Tom Byrne told the Irish Independent that the figures were simply based on the level of cash spent in the first two months, known as the "burn rate", which would not reflect the year as a whole.

"I don't believe it reflects the position the HSE will be in at the end of the year," he said.

Mr Byrne also said there would be measures taken to contain spending throughout the rest of the year.

The overrun is being caused by a spillover of payments from last year, hospital admissions being up and demographic pressures.

But the health budget is also bloated due to the well-publicised problems with plans to cut back the number of medical cards, and the implementation of the Haddington Road deal.

Department of Health sources also say the projection is on the basis of no action being taken to fix the budget.

These sources say the shortfall will ultimately be in the region of €150m-€200m.

But even if the savings expected from the medical cards and Haddington Road are marked down so a lower figure is included in the HSE estimate, the funding will still have to be found elsewhere by the Government, eating up the additional taxes collected so far this year.

Dr Reilly has publicly defied Public Expenditure Minister Brendan Howlin over promised payroll savings in the health services, which will now fall almost €200m short of target this year.

Labour Party figures are pointing the finger at Dr Reilly for a lack of action on the overruns, while Fine Gael continues to be defensive of the minister's record.

In particular, the lack of progress in getting savings from the Haddington Road Agreement is coming under fire.

"There is no pressure to implement. You expect change to happen in different places at different paces, but there's nothing," a source said.

"Is there the political will at this stage? It's hard to escape the logic that there isn't."

The document from the HSE is entitled 'Cash Report – 3 months to Mar 2014' and was prepared by the HSE Finance- Treasury Unit last week.

It runs the figures through three different models to predict the end-of-year position.

SHORTFALL

"In all three scenarios, at this early stage the full year out-turn projections are indicating a potential problem of €530m-€533m, before factoring in planned cost containment and Haddington Road Savings not yet reflected in the YTD (year-to-date) run rates."

The report sets out the "trends in anticipated cash requirements" for the HSE for 2014 and compares this to figures for 2013.

The document looks at three sources of information to determine what will happen by the end of the year. It says last year the "most accurate indicator of the actual final year cash position" was the cash forecasting model.

"The cash forecast figures are generated by each local cash point using the pay/non pay and income headings year to date and projecting out to year end on the basis of the most recent monthly run rates.

"Figures from the cash forecast are based on the preliminary February 2014 full-year cash projections; the model is projecting a full-year 2014 potential cash shortfall of €532m."

The other scenarios are called "cash burn rates", which look at cash drawn down and the "cash used YTD", which compares with the weekly planned budget levels.

Mr Howlin's officials repeatedly point to runaway spending as an example of upcoming problems with the plan for "free care" at point of delivery funded by mandatory health insurance. Dr Reilly's officials and the HSE managers argue the planned pay savings were never realistic.

The HSE last weekend confirmed an expert consultant's report found that there will be a major shortfall in the payroll savings set out for 2014. Its only options now if forced to find the savings are further pay cuts or more health service cuts.

The ECB warned earlier this month that overspending in healthcare is posing the biggest threat to our economic recovery.

At the time, health expenditure was just €49m over budget for the first three months of the year.

The ECB's annual report warned health spending is problematic and needs be reined in if our recovery is to stay on track.

Last year, the Department of Health needed a €200m mini-bailout from the Exchequer.

"Looking ahead, Ireland needs to address the remaining fiscal vulnerabilities, especially in healthcare spending, and to continue to comply with its fiscal targets in order to provide a positive signal to markets," the ECB said.

The warning was contained in the bank's annual report, which included its first update on Ireland since the bailout ended in December.

The focus on health spending echoes similar concerns that were raised back in November in the final report of the troika before the bailout ended.